Meeting Type:
In Person
Description:
In recent years, countless articles, reports and books have been written about stablecoins. Arguably the most significant risk is 'run risk' and the consequences of the ensuing fire sales of short-term securities by the affected stablecoin issuer, leading to harmful procyclical price movements of these securities (Brunnermeier and Pedersen (2009)). There are, however, some other, less known risks and issues that deserve more attention going forward. First, liquidity risk at the crypto exchanges. While the stablecoin issuer may have enough liquid funds to uphold the redeemability at the par in times of stress, crypto exchanges where a stablecoin is traded may not have enough liquid funds to perform payouts in fiat money. The illiquidity of a crypto exchange could then easily lead to a general loss of confidence in crypto markets, including stablecoins. Second, unrealistic potential investment returns. Crypto exchanges and third party platforms often promise returns ('rewards') of up to 20% on stablecoin investments ('yield farming'). Such high returns are not sustainable and will lead to a fallout rather sooner than later. And third, unsuitability for wholesale markets. Current stablecoin arrangements do not meet the safety criteria for monetary settlement assets in wholesale markets (in particular Principle 9 'money settlements' of the CPMI-IOSCO PFMI (2012)). This will be a barrier to the development of wholesale markets for tokenized financial instruments.
Contact Email:
fmi-events@cs.ucl.ac.uk
Last Updated:
July 7, 2026, 6:37 a.m.